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City of St. Anthony, Minnesota June 3, 1993 • Appendix II is our recommended maturity schedule for this issue. The bonds are dated August 1, 1993 and will mature each February 1, 1995 through 2009. Columns 1 through 5 show the levy and maturity years, principal payments, interest rates and payment of principal and interest. Interest rates shown in Column 4 are current market rates and are subject to change between now and the sale date. The 105% overlevy required by state statute is shown in Column 7. Column 8 is the projection of assessment income as developed in Appendix I and Column 9 represents the projected annual tax levies for this bond issue, averaging approximately $32,855 per year. Allowance for Discount We have included an allowance for underwriter's discount of $15/$1,000 bond, or $7,050. The discount provides the underwriters with all or part of their profit and/or working capital for purchasing the issue and permits them to reoffer the bonds to the investing public at a price of par. The City has successfully used the discount bidding approach in the past, and we recommend its continued use herein. Prepayment Provision We also recommend that bonds maturing in the years 2003 through 2009 representing $265,000 or 56% of the issue, be callable by the City as early as February 1, 2002 at a price of par. The call provision should have no adverse impact on the marketability of the bonds. Rating We recommend that the City request a rating from Moody's for this issue. The City is currently rated "A-1" by Moody's Investors Service. The rating fee, estimated at $4,000, has been included as a cost of issuance in the bond issue. Federal Regulations Governing This Issue Under the Tax Reform Act of 1986, all tax-exempt obligations are subject to the federal arbitrage regulations, requiring rebating of any arbitrage profits to the U.S. Treasury. There are some exemptions to the rebate requirements including the "small issuer" exemption for municipalities that issue less than $5 million of tax-exempt obligations during the calendar year. It is our understanding that the City does not anticipate issuing more than $5 million of tax- exempt obligations during calendar year 1993 and will therefore meet the requirements of the "small issuer" exemption for rebate purposes. The Tax Reform Act of 1986 also restricts the ability of banks to deduct tax-exempt interest as a carrying expense under certain circumstances in calculating their tax liability. The Act allows certain obligations to be qualified obligations which can be included in a bank's calculation of interest deductions. However, that qualification is reserved for municipalities which will issue less than $10 million of qualified obligations within the calendar year. Since the City anticipates issuing less than $10 million of tax-exempt obligations during 1993, the City may declare the issue "qualified tax-exempt obligations" under the Act, which permits financial institutions to deduct interest expenses allocable to the issue. • In 1992 the federal Treasury enacted reimbursement regulations to prevent issuers from trying to issue tax-exempt bonds to recover costs for things that were done in the past. Basically, the reimbursement regulations require that if the issuer proposes to reimburse itself for expenses Page 2